Canada's Fiscal Position Remains Strong, Allowing Central Bank to Focus on Inflation, Says Nomura

-- The Canadian government tabled its Spring Economic Update (SEU) last week, substantially revising down deficit projections for 2025, with the medium-term outlook slightly improving, said Nomura.

Debt-to-GDP projections were also revised modestly lower owing to lower debt levels and a stronger growth profile over the forecast horizon, noted the bank in a note published last week.

The government announced the creation of a sovereign wealth fund, with an initial endowment of $25 billion, with more details expected in the coming months.

Overall, the SEU suggests Canada's fiscal position remains strong, leaving the government with additional headroom to support the economy if the CUSMA negotiations falter, while allowing the Bank of Canada to remain focused on inflation risks, stated Nomura.

The SEU contained few surprises, according to the bank. The government revised down deficit projections for 2025, while the medium-term profile improved slightly.